Learning the lessons of success

September 6, 2018

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Published by Wealth Professional, September 5, 2018

InFocus: Income Happens Here

Most industry veterans’ memories of the 1987 stock market crash are dark and traumatic. On Black Monday, markets across the globe crashed with little warning. The Dow shed nearly 22% of its value and the bull cycle that had been running since 1982 was well and truly over. Industry insiders were shaken to the core, but for Michael Kovacs it proved to be a turning point – and a positive one.

“I was two years into the business when the stock market crashed in October 1987 and it was a great lesson for me,” says Kovacs. “I was young and learned quickly that quality of investments is important. I saw my own accounts and the accounts of my clients get hit hard and I thought there had to be a better way to invest.”

Kovacs has learned a lot of lessons in his three decades in the investment industry but his biggest was realizing the importance of taking a long-term approach to investing. So, it was no huge surprise that when Kovacs founded Harvest Portfolios in 2009, one of his core principles centred around creating and maintaining a focus on the long-term.

“I wanted to start a company focused on owning great businesses, investing for long-term performance and growing with those companies over time,” said Kovacs. “Harvest is built on long-term capital growth, while generating steady attractive income for our holders. We are predominantly invested in equities and that ties to the belief that owning great companies over the long-term will get you great growth.”

Harvest follows what Kovacs describes as a “quantitative and fundamental” process in order to systematically select and manage investment solutions that adhere to the firm’s core tenets: to provide consistent income and growth. “We believe investors care about investments they can understand. So, at Harvest, we provide products built on solid fundamentals to protect and grow investor capital to meet their long-term objectives,” Kovacs says. “We believe in providing investors with clear mandates that are easily understood and portfolios that are accessible to all.”

Harvest has also developed a call option writing strategy, which helps Harvest’s funds be more tax efficient by generating premium income that is treated as capital gains. Because the portion of equities that have been written on have the downside protection of the premium collected, the call option writing strategy also helps reduce a fund’s volatility.

“For example,” says Kovacs, “when the fund buys a stock at $50 per share and sells a call option that pays a premium of $2 per share, if the stock price declines, the fund is $2 per share better off than the fund that did not to write calls.”

There are four components to the Harvest call writing strategy: flexible write mandate, flexible write level, flexible multiple strike levels, and flexible timing. “These components are important in helping the fund achieve its income objective while leaving as much upside potential as possible for capital appreciation,” Kovacs says. “It is Harvest’s objective to ensure the fund has a long bias at all times due to our underlying philosophy that wealth is created over the long-term by owning great businesses, growing with them over time and collecting dividends.”

Kovacs considers himself an eternal optimist when it comes to the market. With his long-term approach, he feels he can adjust to whatever happens in the market.

“I started Harvest in March 2009 and was told I was crazy because it was bottom of financial crisis. In hindsight, it was the perfect time to start,” he says. “We believe great organizations will transcend over time, markets and cultures. We believe the companies we own will come through good and poor markets. We are long-term bulls. Short-term market fluctuation or interest rate directions do not influence how we manage money.”

 

About Harvest Exchange Traded Funds (managed by Harvest Portfolios Group Inc.)

Founded in 2009, Harvest Portfolios is a Canadian Investment Fund Manager which offers an innovative suite of exchange traded funds, mutual funds and publicly-listed structured products designed to satisfy the long-term income and growth needs of investors. We pride ourselves in creating trusted investment solutions that meet the expectations of our investors.

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Disclaimer

You will usually pay brokerage fees to your dealer if you purchase or sell units of the Fund(s) on the TSX. If the units are purchased or sold on the TSX, investors may pay more than the current net asset value when buying units of the Fund(s) and may receive less than the current net asset value when selling them. There are ongoing fees and expenses associated with owning units of an investment fund. Investment funds are not guaranteed, their values change frequently and past performance may not be repeated. An investment fund must prepare disclosure documents that contain key information about the fund. You can find more detailed information about the fund in these documents.

Certain statements in the Harvest Blog are forward looking Forward-looking statements (“FLS”) are statements that are predictive in nature, depend upon or refer to future events or conditions, or that include words such as “may,” “will,” “should,” “could,” “expect,” “anticipate,” “intend,” “plan,” “believe,” or  “estimate,” or other similar expressions. Statements that look forward in time or include anything other than historical information are subject to risks and uncertainties, and actual results, actions or events could differ materially from those set forth in the FLS.

FLS are not guarantees of future performance and are by their nature based on numerous assumptions, which include, amongst other things, that (i) the Fund can attract and maintain investors and have sufficient capital under management to effect their investment strategies, (ii) the investment strategies will produce the results intended by the portfolio managers, and (iii) the markets will react and perform in a manner consistent with the investment strategies. Although the FLS contained herein are based upon what the portfolio manager believe to be reasonable assumptions, the portfolio manager cannot assure that actual results will be consistent with these FLS.

Unless required by applicable law, Harvest Portfolios Group Inc. does not undertake, and specifically disclaim, any intention or obligation to update or revise any FLS, whether as a result of new information, future events or otherwise.

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